On January 1, 2021, P Corporation purchases from an unrelated person all the outstanding stock of S Corporation for $90,000. S’s balance sheet on the purchase date is as follows:AssetsBasisFair Market ValueCash$ 5,000$ 5,000Accounts Receivable20,00020,000Inventory (LIFO)20,00040,000Equipment (accumulated depreciation of $10,000)30,00045,000Total Assets$75,000$110,000Liabilities Accounts payable$20,000$ 20,000Equity 55,00090,000Total liabilities and equity$75,000$110,000P properly elects § 338. S’s tax rate is 21 percent.a. What is the aggregate basis of S’s assets after this transaction?b. What is the basis for each individual asset?

It is the section enacted by US Congress to allow taxpayers to consider certain stock purchase…

Answered: On January 1, 2021, P Corporation…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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On January 1, 2021, P Corporation purchases from an unrelated person all the outstanding stock of S Corporation for $90,000. S’s balance sheet on the purchase date is as follows:

Assets	Basis	Fair Market Value
Cash	$ 5,000	$ 5,000
Accounts Receivable	20,000	20,000
Inventory (LIFO)	20,000	40,000
Equipment (accumulated depreciation of $10,000)	30,000	45,000
Total Assets	$75,000	$110,000
Liabilities
Accounts payable	$20,000	$ 20,000
Equity	55,000	90,000
Total liabilities and equity	$75,000	$110,000

P properly elects § 338. S’s tax rate is 21 percent.

a. What is the aggregate basis of S’s assets after this transaction?

b. What is the basis for each individual asset?

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